5 Tips on Blockchain Investment from a Professional Asset Manager

Serious amounts of money will be pouring into crypto according to Sina Nader, founder of Cryptolux Capital in an interview about essential blockchain investment tips, sophisticated strategies, and what do you need to become a successful blockchain projects investor. Sina has a wider perspective on the investment space which helped him build not a simple crypto investment fund but a fund of funds, currently the only one run by an individual with professional asset management experience!

Personal Path

Hi Sina, why don’t you tell us a little about yourself? How did you start?

I am in my mid 30s, and I’m from the United States. I started on Wall Street at Morgan Stanley, then later at Credit Suisse. After that I took a few years to start a health related company focused on sleep, and then came back to my money management roots, this time in crypto. My current goal is to become the premier asset manager for the crypto and blockchain space.

How did it happen that a highly-experienced asset manager from a top-tier investment bank became interested in the blockchain?

My cousin told me about Bitcoin five years ago, and I began researching it. Lightly at first, but then the more I learned, the more interested I became. The fact that blockchain technology allows individuals to be their own international banker was and is extremely appealing to me on a philosophical level.

And of course, that is just the tip of the iceberg. Blockchain and related technologies open up massive opportunities in many fields, from finance to logistics to oil and gas to travel, and the list goes on. I feel like this is an evolution in the way that humans conduct business and commerce. We are witnessing the beginning of a new chapter in human history, just like when the Internet came along and changed so many parts of our lives.

What were your first steps in understanding the blockchain? When were you first interested in it?

I read the Bitcoin white paper to do a quick first pass. Then I started reading everything I could, and watched videos on YouTube by Andreas Antonopoulos. And then when I felt I had a decent grasp of these concepts, I started asking my computer scientist friends questions. My initial interest began around 2013, and it only increased from there.

Tell us a little about Cryptolux Capital. Why is it different from most of crypto investment funds?

CryptoLux provides a single point of entry for a diversified blockchain portfolio. We enable our investors to gain access to several of the world’s top crypto funds, spanning diverse yet complementary strategies. Our team comes from companies including Morgan Stanley, Credit Suisse, Google, eBay, and several successful venture-backed startups, and so we span the finance and technology worlds in terms of experience. I would also highlight that we are the only fund of funds run by an individual with professional asset management experience.

Why did you decide to found a “fund of funds” rather than invest directly?

My partner, Leily Moazami, and I both have successful crypto portfolios, and we are comfortable with all aspects of trading. We have executed successful arbitrage trades on exchanges across the world, have core long term holdings, and are involved in several crypto projects as well. However, we recognized that there are individuals who are better traders than we are. So we thought, “Why reinvent the wheel?” Why not allow the very best traders and investors in the world to do the investing for us? Why try to compete with the best? Let’s invest in the best. That’s our approach.

Current ecosystem

In terms of legal regulation, what changes did blockchain investment companies experience in the last year in the US? In these terms, what do you expect to change in 2018?

The regulatory question is a big one in this space. In fact, as of this moment, US lawmakers are meeting to decide on certain frameworks, which we expect will be net-positive in the long run. Ultimately, governments like commerce. They just want to be able to regulate things, and they will, similar to other financial instruments. And this will be very positive for the blockchain space going forward, and it will allow for even more institutional investors to get involved.

As far as I know, the majority of funds raised by Cryptolux Capital came from Wall Street veterans. In general, what is their opinion on the blockchain and cryptocurrencies in particular?

Wall Street traders and investment professionals have been looking at Bitcoin since 2013, and some have even invested in it that early (or earlier). I know several hedge fund managers who got in then. Initially, it was a purely financial investment for most of them. However, as time went on and their knowledge of blockchain technology increased, they realized the transformative potential of the space.

Imagine instantaneous inter-bank transfers and settlements (instead of taking several days). Imagine stock markets built on distributed ledger technology. Imagine insurance companies built on smart contracts. Real estate ownership on the blockchain. Fractional ownership of homes and other real properties. Cheaper, faster, safer ways to transfer wealth and make payments. All of this is coming and Wall Street professionals are starting to see this, and they will eventually embrace it.

What kind of future do you see for blockchain technologies?

In the same way that the Internet came around and touched most parts of life for most people on Earth, blockchain technology will change the way we live, work, cooperate, invest, trade, travel, think, govern, and exist.

Do you agree that in 10 years only approximately 5% of the currently existing cryptocurrencies will exist?

Indeed, many digital assets that exist today will not exist in 10 years. And that’s okay. It’s just a healthy part of innovation.

Do you think that in the future we will have one widely adopted cryptocurrency or we will see hundreds of useful platforms with different uses?

Think of the Internet. For your social networking, you may go to Facebook or LinkedIn. For your web searches, you may go to Google. For watching movies you may go to Netflix. To buy things you may go to Amazon. If you want to buy music you may use one of iTunes or Spotify. A similar pattern will emerge for cryptocurrencies.

In general, are investments in blockchain projects / cryptos much riskier than in common stocks? What is your proposed strategy for leveling the risks?

Crypto investing is currently riskier than common stocks for a variety of reasons, and regulation is a big part of that. When regulations are stabilized institutional investors will bring in serious amounts of money, and we will see more “calm” conditions as a result. Until then one needs to diversify and avoid placing their bets on only one token or fund manager. There are more sophisticated strategies involving the futures market as well and other ways to hedge risk, but for most investors, diversification is key.

What is your classic strategy in times of recession? What did you do when you were met with the 2008 financial crisis while managing $100 million worth of assets at Credit Suisse?

The best time to prepare for a storm is before the storm actually arrives. Sun Tzu said that “the battle is won or lost before it even begins”. I view portfolio construction and asset allocation as the key when it comes to managing large amounts of money – you need a properly set up portfolio to start with. Inside of that there are tactical and strategic moves that can be made, but the first thing is to position your portfolio in a way that makes sense for your individual risk profile. For example, at Credit Suisse, I had put some of my clients into investments that had built-in risk management protocols. For others, I had already moved them to cash positions before the markets dropped even further. Sometimes, I even had to insist that a client should not take on more risk even though they wanted to – it was my job to keep them safe. At the end of the day, you want a portfolio that makes sense for your risk profile, for the market conditions, and for the type of investing you wish to do. Having successfully managed money throughout the financial crisis, I feel that I can bring this experience to the crypto space, and this is precisely what we plan to do here at CryptoLux. We have seen storms, and we have navigated through them.

Skills needed and hot tasks

How are you going to choose which funds to invest in? What are some hidden secrets that beginners don’t know?

There are many nuances in this area. First of all, fund managers must have top notch technical skills. Ideally, they will have managed assets on a professional basis before, have a track record, and a good amount of assets under management. The custody side of things is critical – how do you store your private keys? Do you outsource or do it in-house? Do you have the skills to have self-custody of your assets? We also look at the psychological profiles of the fund managers, looking for attributes like humility for example. Other things that people may not know is how important it is to control your private keys, how to move assets efficiently from cold storage to exchanges to make trades, and the use of OTC (over-the-counter) trading desks.

What are some skills you acquired as an asset manager that would help you as a blockchain projects investor? How can a beginner acquire those skills?

A friend of mine is a managing director at one of the world’s largest hedge funds. He shared one of his tips when interviewing potential traders. He asked them to take out their wallet, and then remove the dollar bills from it. He looks to see if the currency is organized by size (1s, 5s, 10s, 20s, 50s, and 100s), and if they are all facing the same way, etc. The reason he looks at this is to see how organized a trader is. If he is not able to keep his own wallet organized, do you really want him managing money or trading for you? So the first thing I’d suggest is to be meticulously well-organized wherever possible. Another thing you learn when managing money professionally is the importance of emotional regulation. You must not make emotional decisions, even when the markets are volatile – and this is a skill that one can only truly learn through experience. For a beginner, I’d suggest not investing more than you’re comfortable with losing. And keep a journal next to your workstation — write down how you are doing emotionally before, during, and after a trade. Also, write down any lessons you learned at the end of each day. At the end of each week, review your notes, and do the same thing at the end of each month.

Course recommendations

How did you educate yourself on the blockchain? Did you attend any courses that you would recommend?

I am a big fan of Andreas Antonopoulos, and I would recommend watching his videos. Other than that, I am a voracious reader and read everything I can from reputable sources such as Coindesk, various blogs, Medium articles, The Wall Street Journal, etc. That said, the best learning comes from talking to friends who have deep computer science skills – if you are lucky enough to know any talented computer scientists, ask them about cryptography, peer-to-peer networking, stuff like that.

To sum up, what are some bits of advice would you give for beginners who want to invest in blockchain projects?

1. Never, ever invest more than you’d be willing to lose.
Whatever amount you choose to invest should be an amount that wouldn’t make you cry if it disappeared overnight. This is a risky asset class at the moment, and you need to be fully aware of that before going further.2. Read everything you can about the space and educate yourself.
Ask yourself if a given project actually needs to use blockchain technology, or if the promoters are merely adding the word “blockchain” to make the project seem like a more sexy investment opportunity than it really is.3. Do not rely on the “promises” of third parties. Verify things for yourself.4. Keep a healthy level of skepticism at all times.5. Monitor your own emotions to make sure your decisions are based on logic rather than on feelings like greed or fear.